Question

Ex ante aggregate supply in the fixed-price model is expressed algebraically as:

Options

• AS = \(\overline{C}\) + \(\overline{I}\)

• AS = Y(1 − c)

• AS = Y

• AS = cY

Answer 1

Ex ante aggregate supply is AS = Y, since whatever the level of GDP, the same amount is supplied when the price level is fixed. This corresponds graphically to the 45° line, where the vertical coordinate (aggregate supply) equals the horizontal coordinate (GDP, Y).